ASIA CREDIT CLOSE: Subs, perps, HY in favour among Asian investors

TOKYO, October 10 (IFR) - The continuous flow of funds into emerging markets bond funds are giving a fillip to newly minted bonds in the secondary credit markets, with investors shrugging off a heavy issuance pipeline.

Indeed the reception to the four deals that priced last night by Sunac China, United Overseas Bank, Syndicate Bank and Lifestyle suggest that there is still an enormous pool of funds that have to be put to work with only three months left of 2012.

Today's secondary markets are reflecting more focus on better-yielding subordinated, hybrid and high-yield papers, and this is not just limited only to Asia as regional private banks drive cash bonds higher.

Indeed, the cash bonds outperformed synthetic credit spreads, perhaps with the exception of those for Indian corporates.

The iTraxx Asia ex-Japan IG widened about 1bp to 130.5bp/132.5bp, according to Markit, although traders quoted levels that were flat to yesterday's levels.

China's 5-year CDS was up around 1.2bp on the day at 84.5bp/86.5bp. Markit had the Philippines' cost of protection 1.5bp higher at 116bp/121.5bp and Indonesia roughly unchanged at 141.5bp/146bp, though traders had quotes that were a touch tighter.

But it was the sharp compression in CDS spreads in Indian names over the past 24 hours that caught the market's attention. The CDS of ICICI, SBI, Reliance Industry, Exim India and IOI Corp were among the top Asian tighteners in the past 24 hours.

ICICI's spreads tightening the most over the past day with its CDS easing nearly 8bp for a quote of 299bp/327bp, while SBI tightened about 5bp to 249bp/272bp.

Traders attributed the sharp falls to the significant market reforms announced by the government over the past month, which had included raising the price of subsidised fuel to rein in the budget deficit, opening the retail sector to foreign supermarkets and raising the bar on foreign investment in airlines.

The market were expecting the reforms to avert a potential rating downgrade for India, and the response to Syndicate Bank's deal seemed to vindicate the markets' positive sentiments.

But this may become a short-term relief, as the rallies were rudely checked this afternoon by an S&P report that said the recent reforms were only "slightly" revising its view on the country's credit rating. It said there was still a significant chance of a rating downgrade.

Syndicate Bank's newly printed USD500m 5.5-year Reg S, the tightest print from an Indian commercial bank this year in US dollars, skidded on the agency's report. Around lunchtime, the paper was quoted at UST+354bp, slightly inside the issue price of T+355bp, but this jumped to +359bp in the afternoon session.

A trader said that a lot of bids on Syndicate Bank as well as other Indian banks were checked following the S&P's comments.

Other newly priced deals fared better. Traders in Hong Kong and Singapore were active in the new HY bonds from China property company Sunac. The 5NC3 Reg S notes firmed by around 1.5 points, quoted at 101.5 today versus the reoffer price at par yesterday. The bonds were quoted at 100.85/101.00 earlier in the day.

HK department store operator Lifestyle also did well. Its 10-year bonds priced at UST+265bp yesterday for a USD300m issue size. They were at T+253bp in the morning session and quoted near the close at T+248bp, according to one trader.

Traders also reported better support for Chinese bonds today, after the PBOC intervened in the market on Wednesday with a massive liquidity injection. While Chinese money market rates plunged after the intervention, Chinese bonds were said to be better bid.

Not only Asian issuers are generating interest in the market. France's CNP Assurance priced overnight a USD500m perpetual non-call six sub debt with a 7.5% coupon at par. Today, the paper was quickly bid up to 101, thanks to Asian investors which had taken a chunky 89% of the deal's share allocation.

The vast majority of the paper of over 90% was heard placed with PBs, but they did not seemed to have enough of the paper and remained buyers across the day with the notes quoted by Asia close at 102/103.

Strong demand and interest is also reported for Asian corporates with the market excited about potential issues from SK Telecom.